CME-CBOE reach $1B deal
By: Ann Saphir June 02, 2008
(Crain’s) — CME Group Inc.’s Chicago Board of Trade and its adversary, the Chicago Board Options Exchange, have agreed to a $1-billion settlement of their long-running legal dispute.
The exchanges have been battling in court for close to two years over whether Chicago Board of Trade members, whose exchange CME bought last year for $12 billion, are entitled to a stake in the CBOE. The settlement paves the way for CBOE to strike a deal with another exchange or to do an initial public offering, moves that were impossible without putting the dispute behind it.
The settlement calls for certain CBOT members to receive 18% of the CBOE and $300 million in cash, according to two people familiar with the terms. To be eligible, CBOT members must have a full seat and a permit used to transform that seat into a CBOE trading right.
The settlement was approved by CBOE board members Monday, and comes just before a key hearing in the case scheduled for Wednesday in Delaware. It must be approved by the Delaware court where CBOT filed its lawsuit, and by CBOE members.
The settlement strikes a balance between two competing proposals made in March. At the time, CBOT members suggested a settlement of about $1.3 billion; the CBOE had put forth a $900-million settlement proposal. All settlement valuations assume CBOE is valued at $4 billion. Analysts peg CBOE’s value at anywhere from $2.5 billion to $6 billion or more.
News of a potential settlement is the latest chapter in a dispute dating to 1973, when CBOT members funded the start-up options market, giving themselves the right to trade there.
The CBOT members and the Board of Trade sued the CBOE in August 2006, arguing that the trading rights also confer equity ownership in the options exchange.
CME is bankrolling the lawsuit.
The dispute has raised enough questions about who really owns the CBOE that it has kept the options market from pursuing an initial public offering or merger with another exchange.
In March CBOT members asked for 22% of the CBOE plus $300 million to $400 million in cash, people familiar with the matter said at the time. That’s about $1.3 billion, assuming CBOE is worth $4 billion. Analyst estimates for the CBOE’s value range from $2.5 billion to more than $6 billion. The CBOE had offered 15%, plus $200 million to $300 million in cash.
Caught in the middle are CBOT members holding on to millions of dollars of CME stock to remain eligible to participate in any payout from the CBOE.
With CME shares down more than $300 from their $714 high in December, some CBOT members simply want the lawsuit behind them. |
